Payroll Accounting Services
Many years ago the government of the day realised that the most cost effective way to collect taxes from employees was to legislate and make employers do the job for them thus Pay As You Earn (PAYE) was born!
PAYE has an impact for both employers and employees, and we have covered some of the pitfalls below.
PAYE – Issues for Employers and Employees.
Employers
If you employ staff then you will have statutory filing deadlines to meet for filing forms and making payments to HM Revenue & Customs (HMRC).
Unfortunately, ignorance is not bliss! If you ignore these obligations, penalties and interest will soon be added to your employment costs! Penalties are now issued automatically and arise when employer return forms are submitted late or when the tax and National Insurance deducted from employees’ wages is paid late to HMRC.
Employee Benefits.
If you provide employees with benefits, for example company cars and health insurance, be sure to watch out for the following:-
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Identification is difficult – sometimes seemingly unrelated expenditure, such as excessive staff entertaining, can be classified as a benefit.
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Benefits attract their own National Insurance charge which has to be paid by employers in July each year.
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Benefits have to be declared to HMRC on specific forms which must be submitted on time in order to avoid penalties.
Employers – other points of interest.
- Small businesses are able to pay their deductions quarterly rather than monthly - this can help with cash flow especially for new ventures.
- Employers have an additional National Insurance liability which is based on salary levels paid to employees. This is paid to HMRC each month/quarter with the tax and National Insurance deducted from employees’ gross salaries.
Employees - make sure you only pay what you owe!
The tax deducted from your salary is calculated by subtracting your annual tax free allowance from your salary and applying the appropriate tax rate to the difference. Most payroll systems are quite adept at calculating the tax due, but they rely on the tax office to issue a correct code number to quantify your annual tax free allowance - this is the area where mistakes can be made and your tax bill increased unnecessarily.
We provide a payslip calculator on our website so you can calculate how much of your gross pay you will keep after tax and National Insurance deductions.
PAYE codes
Basically, a PAYE code is made up of numbers and letters and includes personal allowances and any gross deductions. Providing that you are not on a ‘K’ code, the higher the number in your tax code, the less tax you will pay. If you have a ‘K’ code it means that the deductions in your code exceed your allowances and the higher the number, the more tax you will suffer. A few common errors are:
- Employers are sometimes slow in sending in details to the tax office when new employees start. This can delay the issue of a correct code number resulting in excessive tax deductions.
- Employees who change their company cars for lower taxed models, or indeed stop using a company car will continue to be taxed based on last tax year’s information, until the tax office is informed of the change.
- The tax office will sometimes seek to recover unpaid tax in earlier years by reducing your tax code in the current year. This deduction should always be checked to make sure the arrangement does not duplicate other payments that you may have made directly to HMRC.
The key to maintaining the correct code number is to notify the tax office immediately when changes occur.
How we can help
We are trained to advise our clients in all aspects of payroll preparation and compliance. Not only can we offer a complete payroll service if you would like to outsource this time consuming process, but we also offer advice on recruiting and retaining staff and provide human resources consultancy services.
If you would like to discuss PAYE and any other employment related issues or if you do require full payroll service then please don't hesitate to get in touch.
Click here to view our online PAYE brochure.
Help & Advice
Contact us now so we can discuss your requirements; call us on: 01260 241080 Or fill in our Contact form and we will call you back.
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